Measuring Quality of Life under Spatial Frictions

Fabian Bald, Duncan Roth, Seidel Tobias and Gabriel M. Ahlfeldt
Additional contact information
Fabian Bald: Europe University Viadrina
Duncan Roth: Institute of Employment Research (IAB)
Seidel Tobias: University of Duisburg-Essen
Gabriel M. Ahlfeldt: HU Berlin

No 522, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: Using a quantitative spatial model as a data-generating process, we explore how spatial frictions affect the measurement of quality of life. We find that under a canonical parameterization, mobility frictions—generated by idiosyncratic tastes and local ties—dominate trade frictions—generated by trade costs and non-tradable services—as a source of measurement error in the Rosen-Roback framework. This non-classical measurement error leads to a downward bias in es-timates of the urban quality-of-life premium. Our application to Germany reveals that accounting for spatial frictions results in larger quality-of-life differences, different quality-of-life rankings, and an urban quality-of-life premium that exceeds the urban wage premium.

Keywords: housing; spatial frictions; rents; prices; productivity; quality of life; spatial equilibrium; wages (search for similar items in EconPapers)
JEL-codes: J20 J30 R20 R30 R50 (search for similar items in EconPapers)
Date: 2025-01-20
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